The cryptocurrency exchange isn’t violating the Securities Exchange Act as the SEC asserted
Coinbase has gained a significant win in its ongoing lawsuit after the US Court of Appeals for the Second Circuit ruled in its favor, confirming that Coinbase’s secondary cryptocurrency sales are not in violation of the Securities Exchange Act.
The recent ruling by the appeals court impacts a group of individuals throughout the country who traded tokens on Coinbase between October 8, 2019, and March 11, 2022. The dispute centered around whether the cryptocurrencies that were traded on Coinbase fulfilled the criteria for securities. The SEC accused Coinbase of offering and selling unregistered securities and of violating several securities law provisions.
However, Coinbase asserted that secondary crypto asset sales didn’t meet the criteria for securities transactions and disputed whether the securities regulations were relevant. After examining various aspects, the court ultimately overturned some lower court rulings while supporting others.
The court ruled on Coinbase’s possible liability under Section 12(a)(1) of the Securities Act for offering unregistered securities. However, the court rejected the plaintiffs’ Securities Exchange Act claims, citing insufficient evidence.
The court’s decision was primarily based on interpreting Coinbase’s evolving user agreements. Different versions of the agreement had complicated privity and title issues important to the case.
Coinbase contended that the decision strengthened its position that secondary crypto sales are not securities transactions and stressed the need for regulatory clarity to encourage innovation in the crypto industry. The court’s ruling also has major consequences for managing cryptocurrencies and digital assets.
We appreciate the Second Circuit confirming today what is clear under the federal securities law: there’s no private liability for the secondary trading of digital assets on exchanges like Coinbase. Why? Because contracts matter. 1/2
— paulgrewal.eth (@iampaulgrewal) April 5, 2024
Paul Grewal, Coinbase’s chief legal officer, conveyed gratitude on the X social media platform, expressing that the court reaffirmed that secondary digital asset trading on exchanges has no private liability under federal securities law, stressing the importance of contracts.
